Coinstar's Strong Q4 and Verizon Deal Makes Sense for Wall Street

Joel Anderson  |

Shares in Coinstar (CSTR) jumped almost 20 percent in early trading Tuesday after a solid earnings report was released after market close Monday. This comes right on the heels of the release of news that the company would be pairing with Verizon (VZ) to enter into competition with Netflix (NFLX) in providing movies to consumers.

Share Price Spikes on Earnings Report

Coinstar had about as good a day as one can expect on Monday when its earning call revealed that it had shattered expectations for the fourth quarter of 2011. Coinstar, which offers automated retail solutions like DVD rental kiosks through its Redbox brand or the company's namesake coin counting kiosks, was expected to report earnings of $0.65 per share on revenue of $498 million, but the company turned in significantly higher figures, earning $1 per share on revenue of $520.5 million.

The major beat clearly made investors take interest quickly as shares spiked in after hours trading that continued into Tuesday. Coinstar's up just over 18 percent in the early afternoon, giving it an over 45 percent gain over the last month.

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Joint Venture Also Makes News

The earnings report for Coinstar came in the afternoon after a morning announcement that the company's Redbox brand was taking a bold step into a new arena. Redbox is pairing with Verizon to offer DVD and streaming internet services intended to rival Netflix. The major boost in revenue for Coinstar could very possibly be connected to the 2.8 million subscribers that the embattled Netflix lost late last year amid the major flap over the potential separation of its DVD and streaming services, so Coinstar's new joint venture is clearly building on this momentum. It's unclear what level of competition the new venture will be able to create, particularly with Netflix expecting to invest over $1 billion in new content in the next year.

Web Streaming Grows More Crowded

Verizon and Coinstar enter into the streaming internet entertainment marketplace, one that has grown quickly and now features serious headwinds for Netflix, the company that once dominated the market. Netflix CEO called HBO, owned by Time Warner (TWX), Netflix's "biggest competitor;" a comment bolstered by HBO's decision early this year to stop selling its DVD's to the service.

Add to this the growing popularity of internet-driven television services like Hulu, which has been making a publicity blitz for its Hulu Plus feature that will feature access to a library of films, and Netflix appears to be facing serious headwinds. Add the creation of television systems by Google (GOOG) and Apple (AAPL) which will make access to a variety of content providers much simpler and there are now several companies jockeying to be the next Netflix. Including Netflix.

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